480 U.S.

123
107 S.Ct. 1038
94 L.Ed.2d 112

WESTERN AIR LINES, INC., et al., Appellants,

v.
BOARD OF EQUALIZATION OF the State of SOUTH
DAKOTA, et al.
No. 85-732.
Argued Nov. 3, 1986.
Decided Feb. 24, 1987.

Syllabus
A provision of the Airport and Airway Improvement Act of 1982, 49
U.S.C. 1513(d)(1), prohibits the imposition of discriminatory state or
local property taxes on air carriers. However, 1513(d)(3) provides that
the prohibition does not apply to any "in lieu tax which is wholly utilized
for airport and aeronautical purposes." The South Dakota Airline Flight
Property Tax, enacted in 1961, is imposed on air carriers on the basis of
the value of their aircraft and provides for allocation of the taxes to the
airports used by the carriers, and for use of the taxes exclusively by the
airports for airport purposes. This tax, which is centrally assessed, was an
exception from the general state scheme of local property tax assessment
at the county level. In 1978 the State exempted from ad valorem taxation
all personal property that was locally rather than centrally assessed.
Appellant airline companies paid their flight property taxes in 1983 under
protest, unsuccessfully sought refunds from appropriate county and state
authorities, and ultimately sought relief on appeals to a South Dakota
Circuit Court on the ground that, because airline flight property was
subject to taxation while most other personal property was exempt, the
state tax violated 1513(d)(1). The court consolidated the actions and
held that the state tax was permitted under 1513(d)(3). Although
disagreeing with that holding, the South Dakota Supreme Court affirmed
on an alternative ground based on its interpretation of other provisions of
1513(d).
Held: The South Dakota tax is an "in lieu tax which is wholly utilized for

airport and aeronautical purposes" under 1513(d)(3), and thus does not
violate the antidiscrimination provisions of 1513(d). The question
whether a state tax is an "in lieu tax" under 1513(d)(3) is one of federal
law, and the purpose and effect of the state tax must be examined in light
of the policy embodied in the federal law. Section 1513(d)(3)'s
requirement that the state tax be "wholly utilized for airport and
aeronautical purposes" reflects the federal policy of preventing state and
local governments from excessively taxing nonvoting, nonresident
businesses in order to subsidize general welfare services for state
residents. The phrase "in lieu tax" restricts 1513(d)(3)' protection to
property taxes applied to the exclusion of any other tax on the property
that is, to taxes applied in lieu of any other possible property taxand
reinforces the policy reflected in the "wholly utilized for airport and
aeronautical purposes" phrase. The South Dakota Airline Flight Property
Tax establishes a method of taxing a particular type of property to the
exclusion of any other tax on that property. It therefore stands in lieu of
the generally applicable ad valorem property tax that had been assessed on
most other commercial and industrial property in the State at the time the
airline flight property tax was established. It is not necessary that in order
to be exempted under 1513(d)(3) the state tax must take the place of
another tax that historically had been applied to the airline property. Pp.
129-134.
372 N.W.2d 106 (S.D.1985), affirmed.
O'CONNOR, J., delivered the opinion for a unanimous Court. WHITE, J.,
filed a concurring opinion, post, p. ---.
Raymond J. Rasenberger, Washington, D.C., for the appellants.
Mark V. Meierhenry, Sioux Falls, S.D., for the appellees.
Justice O'CONNOR delivered the opinion of the Court.

In this case we consider whether the South Dakota Airline Flight Property Tax,
S.D. Codified Laws, ch. 10-29 (1982), violates the Airport and Airway
Improvement Act of 1982, 49 U.S.C. App. 1513(d). We conclude that
because the South Dakota Airline Flight Property Tax is an "in lieu tax which is
wholly utilized for airport and aeronautical purposes," 49 U.S.C. App.
1513(d)(3), the tax does not violate 1513(d).

* The federal provision at issue is part of a series of congressional actions

dedicated to improving the Nation's air transportation system. Aloha Airlines,

Inc. v. Director of Taxation, 464 U.S. 7, 8-10, 104 S.Ct. 291, 292-293, 78
L.Ed.2d 10 (1983). In 1970, following findings that "substantial expansion and
improvement of the airport and airway system is [sic] required to meet the
demands of interstate commerce, the postal service, and the national defense,"
H.R.Conf.Rep. No. 91-1074, p. 29 (1970), U.S.Code Cong. & Admin.News
1970, pp. 3047, 3101, Congress required the Secretary of Transportation to
prepare a plan for the development of public airports, and authorized the
Secretary to make grants to States and localities for airport development.
Airport and Airway Development Act of 1970, Pub.L. 91-258, 84 Stat. 219.
Congress also established an Airport and Airway Trust Fund, maintained by
federal aviation taxes, to finance airport development projects. 208, 84 Stat.
250. Soon afterward, Congress acted to limit state taxation of air transportation.
Concluding that state passenger use taxes placed "an unnecessary burden on
interstate commerce," and had "a stifling effect on air transportation," H.R.Rep.
No. 93-157, p. 4 (1973), Congress prohibited such taxes in the Airport
Development Acceleration Act of 1973, Pub.L. 93-44, 7(a), 87 Stat. 90.
3

In the Airport and Airway Improvement Act of 1982, 96 Stat. 701, Congress
added a 7(d) to the Airway Development Acceleration Act of 1973,
prohibiting the imposition of discriminatory property taxes on air carriers. That
prohibition, as codified at 49 U.S.C.App. 1513(d), reads:

"(d) Acts which unreasonably burden and discriminate against interstate

commerce; definitions

"(1) The following acts unreasonably burden and discriminate against interstate
commerce and a State, subdivision of a State, or authority acting for a State or
subdivision of a State may not do any of them:

"(A) assess air carrier transportation property at a value that has a higher ratio
to the true market value of the air carrier transportation property than the ratio
that the assessed value of other commercial and industrial property of the same
type in the same assessment jurisdiction has to the true market value of the
other commercial and industrial property; "(B) levy or collect a tax on an
assessment that may not be made under subparagraph (A) of this paragraph; or

"(C) levy or collect an ad valorem property tax on air carrier transportation

property at a tax rate that exceeds the tax rate applicable to commercial and
industrial property in the same assessment jurisdiction.

"(2) In this subsection

*****

10

"(D) 'commercial and industrial property' means property, other than

transportation property and land used primarily for agricultural purposes or
timber growing, devoted to commercial and industrial use and subject to a
property tax levy; . . .

11

*****

12

"(3) This subsection shall not apply to any in lieu tax which is wholly utilized
for airport and aeronautical purposes."

13

The South Dakota Airline Flight Property Tax, which appellants allege violates
1513(d), was enacted in 1961. Flight property is defined as "all aircraft fully
equipped ready for flight used in air commerce." S.D.Codified Laws 10-291(4) (1982). The portion of the value of flight property subject to the tax is
based on flight tonnage, flight time, and revenue ton miles, 10-29-10, and this
value is taxed at the "average mill rate," 10-29-14. The statute also provides
that "[t]he taxes imposed by this chapter shall be allocated by the secretary of
revenue to the airports where such airlines companies make regularly scheduled
landings and shall be used exclusively by such airports for airport purposes. . .
." 10-29-15.

14

The South Dakota statute provides that "[f]light property of airline companies
operating in the state shall be assessed for the purpose of taxation by the
department of revenue and not otherwise," 10-29-2. Airline flight property is
1 of 10 specific categories of property that are centrally assessed for purposes
of taxation. (The other categories are certain property of railroads, private carline companies, express companies, telephone companies, telegraph companies,
electric, heating, water and gas companies, rural electric companies, rural water
supply companies, and pipeline companies. See S.D.Codified Laws chs. 10-28
through 10-37.) Each of these categories was an exception from the general
South Dakota scheme of local property tax assessment at the county level.
S.D.Codified Laws 10-3-16 (1982). In 1978, South Dakota exempted from ad
valorem taxation all personal property that was locally rather than centrally
assessed, 10-4-6.1.

15

In May 1983, appellants, four airline companies operating in South Dakota,

paid their flight property taxes for the first six months of 1983 under protest.
Appellants then sued the appropriate county treasurers for a refund. Appellants
alleged that, because airline flight property was subject to taxation while most
other personal property was exempt, the South Dakota flight property tax
violated 1513(d)(1)(A) and (C). In each case the county answered that the
state flight property tax was "utilized wholly for airport and aeronautical
purposes and is in lieu of property taxes and is therefore permitted by 49 U.S.C.
[App. ] 1513(d)(3)." App. 10-11. Following an unsuccessful request to seven
county boards of commissioners to abate and refund flight property taxes paid
after the effective date of the Airport and Airway Improvement Act of 1982,
appellants sued the county commissions for abatement and refund. App. 17.
Finally, appellants appealed the property tax assessment to the South Dakota
State Board of Equalization. The Board of Equalization unanimously denied
the appeal, holding that "the airline flight property tax is in lieu of personal
property tax and is totally utilized for airport and aeronautical purposes,
therefore, in conformity with Section [1513](d)(3), this tax is lawful and not a
violation of Federal law." Id., at 31. All the lawsuits described above were
consolidated in the Circuit Court for the Sixth Judicial Circuit in Hughes
County, South Dakota. That court agreed with the counties and the Board of
Equalization that the flight property tax was permitted under 1513(d)(3).
App. to Juris. Statement 19a-21a.
16

On appeal, the Supreme Court of South Dakota disagreed with the conclusion
that the flight property tax was authorized under 1513(d). 372 N.W.2d 106
(1985). In order to be an "in lieu tax," the court reasoned, the flight property tax
must be a substitute for another tax on flight property. "In the case at bar,
however, the tax is not a substitute for an ad valorem personal property tax. It is
in fact the first imposition of personal property tax on the airline flight
property." Id., at 109. The State Supreme Court affirmed the Circuit Court,
however, on an alternative ground. Under 1513(d)(1)(A) and (C), the
discriminatory nature of assessment ratios or tax rates applied to airline
property is determined by comparison to the ratios and rates applied to other
"commercial and industrial property." "Commercial and industrial property" is
defined as "property, other than transportation property and land used primarily
for agricultural purposes or timber growing, devoted to commercial and
industrial use and subject to a property tax levy." 1513(d)(2)(D) (emphasis
supplied). Because locally assessed personal property was not subject to a
property tax levy, the State Supreme Court concluded that such property
"cannot be included as commercial or industrial property for comparison under
either" 1513(d)(1)(A) or (C). 372 N.W.2d, at 110. Because appellants'
claims under 1513(d) were based on a comparison between flight property
and property no longer subject to a tax levy, the court concluded that the claims

must be rejected.

17

18

South Dakota Supreme Court Justice Henderson concurred in the court's

interpretation of the "in lieu tax" provision, but dissented from the court's
interpretation of " 'commercial and industrial property.' " The State Supreme
Court holding, Justice Henderson observed, permitted " 'greater discrimination
when the [commercial and industrial] property is completely exempt than when
it is taxed, but at a lower rate.' " Id., at 112, quoting Northwest Airlines v. State
Board of Equalization, 358 N.W.2d 515, 517 (N.D.1984). Such an
interpretation of the federal antidiscrimination provisions was unreasonable,
Justice Henderson concluded. "Since the level of assessment on commercial
and industrial personal property is zero, the level of assessment of the airlines'
personal property must be reduced to zero." 372 N.W.2d, at 112.
In their jurisdictional statement to this Court appellants challenged the Supreme
Court of South Dakota's interpretation of "commercial and industrial property"
under 1513(d). Appellees defended the judgment on the basis of the same
reasoning used by the Supreme Court of South Dakota. We noted probable
jurisdiction, 475 U.S. 1008, 106 S.Ct. 1180, 89 L.Ed.2d 297 (1986). Following
oral argument, we requested supplemental briefing from the parties, and called
for the views of the United States, on the following questions: (1) Is the
question whether a state tax is an "in lieu tax which is wholly utilized for
airport and aeronautical purposes," one of state or federal law, and "(2) If
federal law governs the question whether a tax is an in lieu tax under 1513(d)
(3), is the South Dakota Airline Flight Property Tax . . . an 'in lieu tax' under
1513(d)(3)?" 479 U.S. 958, 107 S.Ct. 451, 93 L.Ed.2d 399 (1986). Because our
conclusions on these two questions resolve this case, we do not reach the
question of the interpretation of "commercial and industrial property" under
1513(d).

II
19

The parties and the United States agree that the question whether a state tax is
an "in lieu tax which is wholly utilized for airport and aeronautical purposes,"
under 1513(d)(3), is ultimately one of federal law. The general principle that,
absent a clear indication to the contrary, the meaning of words in a federal
statute is a question of federal law has especial force when the purpose of the
federal statute is to eliminate discriminatory state treatment of interstate
commerce. Indeed, in Aloha Airlines, Inc. v. Director of Taxation, 464 U.S., at
13-14, 104 S.Ct., at 294-295, this Court held that a state legislature's
characterization of a tax could not shield the tax from application of another
subsection of 1513. In the present case, as in Aloha Airlines, supra, we must

examine the "purpose and effect" of the state tax in light of the policy embodied
in the federal provision.
20

Congress has given us little material with which to interpret the in lieu tax
exception. The provision was added to the Act at conference, and there is no
legislative history specifically discussing it.* The language of 1513(d)(3)
itself, and the policies reflected in the Airport and Airway Improvement Act of
1982, however, lead us to the conclusion that the in lieu tax provision exempts
the South Dakota Airline Flight Property Tax from the restrictions of 1513(d).

21

Section 1513(d)(3) uses two characteristics to identify a group of airline

property taxes that are exempted from the restrictions of 1513(d)(1). First,
and perhaps most important, to fall under the protection of 1513(d)(3) a tax
must be "wholly utilized for airport and aeronautical purposes." Section
1513(d) is modeled on similar provisions in the 4-R Act and the Motor Carrier
Act of 1980. See 49 U.S.C. 11503, 11503a. The legislative history of the
antidiscrimination provision in the 4-R Act demonstrates Congress' awareness
that interstate carriers "are easy prey for State and local tax assessors" in that
they are "nonvoting, often nonresident, targets for local taxation," who cannot
easily remove themselves from the locality. S.Rep. No. 91-630, p. 3 (1969).
The Department of Transportation had observed that "[s]tate and local
governments derive substantial revenues from taxes on property owned by
common carriers." Id., at 4. It is this temptation to excessively tax nonvoting,
nonresident businesses in order to subsidize general welfare services for state
residents that made federal legislation in this area necessary. The ability to use
taxes levied on an interstate carrier to subsidize general welfare spending does
not exist, of course, when the proceeds are allocated directly and entirely to the
benefit of the carrier. Not only is the possibility of discriminatory benefits to
state residents eliminated, but also the specter of discriminatory burdens on the
carrier is avoided by the recycling of the tax revenues into the specific facilities
used by the carrier.

22

Second, the phrase "in lieu tax" restricts the protection of 1513(d)(3) to
property taxes applied to the exclusion of any other tax on the property, in other
words, to taxes applied in lieu of any other possible property tax. This
requirement reinforces the policy reflected in the "wholly utilized for airport
and aeronautical purposes" phrase. If the revenues collected pursuant to a
property tax are specifically used for the benefit of those from whom the tax
was collected, then, as explained above, the tax does not discriminatorily take
from some in order to benefit others. If the same property is also subjected to
tax used to subsidize general state expenditures, however, then the potential for
abuse remains. Two individually nondiscriminatory taxesa tax used for

general welfare spending that meets the assessment ratio and rate restrictions of
1513(d)(1), and a tax the proceeds of which are devoted entirely to the
industry from which it is collectedobviously can become discriminatorily
burdensome when combined.
23

South Dakota levies a tax on airline flight property, the proceeds of which are
wholly utilized for airport and aeronautical purposes. See S.D.Codified Laws
10-29-15 (1982), quoted supra, at 126. The South Dakota Airline Flight
Property Tax establishes a method of taxing a particular type of property to the
exclusion of any other tax on that property. It therefore stands in lieu of the
generally applicable ad valorem property tax that had been assessed on most
other commercial and industrial property in the State at the time the airline
flight property tax was established. The language and logic of 1513(d)(3),
therefore, lead to the conclusion that the South Dakota Airline Flight Property
Tax falls under the in lieu tax exemption.

24

Appellants argue, however, that these characteristics alone are not sufficient for
a tax to be exempted by 1513(d)(3). Appellants advocate the position taken
by the Supreme Court of South Dakota, that in order to be exempted under this
provision a tax must take the place of another tax that historically had been
applied to the airline property. The fact that a property tax is applied to the
exclusion of all other property taxes is immaterial, appellants assert, unless
some past tax was actually replaced by the present tax. Because South Dakota's
taxation of airline flight property has always taken the form of the taxation
scheme at issue in this case, appellants argue, the South Dakota Airline Flight
Property Tax is not a true "in lieu tax."

25

Admittedly the phrase "in lieu tax" is open to this interpretation. The illogical
results of applying such an interpretation, however, argue strongly against the
conclusion that Congress intended these results when it drafted 1513(d)(3).

26

Under the interpretation appellants advocate, the question whether a tax would
be exempted under the in lieu tax provision would, at best, turn on historical
fortuity. The identical taxation scheme South Dakota utilizes would be
exempted under 1513(d)(3) if South Dakota had at one time applied some
other taxation scheme to airline flight property. Thus, if at one time the
proceeds of the airline flight property tax had gone to general state expenditures
rather than directly to the benefit of airports and airlines, the present tax would
be exempted. Because South Dakota has always chosen to devote its taxes on
airline flight property solely to the benefit of those airlines, it is not exempted,
according to appellants. Why a State that has consistently chosen to levy, to the
exclusion of all other property taxes, a tax utilized wholly for aeronautical

purposes should be penalized for its consistency is unexplained.

27

At worst, appellants' interpretation of 1513(d)(3) would do no more than

place a meaningless hurdle before state legislatures seeking to conform their tax
scheme to the requirements of this provision. A closer examination of how this
proposed replacement requirement would operate in practice illustrates the
point. Appellants do not suggestand have no basis upon which to suggest
that in order to be an "in lieu tax" under 1513(d)(3) the airline flight property
tax must have replaced some other tax by the effective date of the federal
provision. If one tax must replace another, therefore, the replacement could
take place at any time. Moreover, it could not be a condition of 1513(d)(3)
coverage that the "in lieu tax" replace a tax that had met the antidiscrimination
restrictions of 1513(d). If the tax described in 1513(d)(3) could replace only
a tax that met all the requirements of 1513(d)(1), then 1513(d)(3) would not
be an exemption at all; it would simply add a restriction on how the taxes could
be spent with no corresponding latitude on how they may be collected.
Ultimately, therefore, South Dakota could satisfy appellants' interpretation of
1513(d)(3) by simply amending its tax code so that its airline flight property
tax took some other form, then the following session substituting for that tax a
tax utilized wholly for aeronautical purposes. This exercise of replacing one tax
with another, while contributing somewhat to a state legislature's workload,
would contribute nothing to the policies of the Airport and Airway
Improvement Act.

28

In sum, the language of 1513(d)(3), while at first glance ambiguous, should

be interpreted in a manner that comports with the policies of the Airport and
Airway Improvement Act. That interpretation is that 1513(d)(3) exempts
from the antidiscrimination provisions of 1513(d)(1) a tax on airline flight
property, applied to the exclusion of any other possible tax on that property, the
proceeds of which are wholly utilized for airport and aeronautical purposes.
Because the South Dakota Airline Flight Property Tax fits this description, it
does not violate the antidiscrimination provisions of 1513(d). For this reason,
the judgment of the Supreme Court of South Dakota is

29

Affirmed. Justice WHITE, concurring.

30

Neither in responding to appellants' jurisdictional statement nor in their brief on

the merits did appellees defend the airlines tax as an in-lieu tax; and as my
dissenting vote indicated, I thought it inappropriate to call for further briefing
and sua sponte pose the in-lieu issue rather than to address what I thought to be
the plainly improvident ground on which the South Dakota Supreme Court
sustained the tax. But the Court's action is surely within its power, for the in-

lieu issue was raised and decided in the South Dakota courts. That question is
now before us, and the Court having correctly decided it, I join its opinion.

The United States and appellants have directed our attention to a 1975 Report
of the House Committee on Interstate and Foreign Commerce on H.R. 10979,
the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act). As
we note infra, at 131, the antidiscrimination provisions of 49 U.S.C.App.
1513(d) were modeled on a similar provision in the 4-R Act. This Report used
the phrase "in lieu tax" to describe special taxes on common carriers that
operate differently from the generally applicable property tax schemes.
H.R.Rep. No. 94-725, pp. 77, 78 (1975). The House Report seems to have used
the phrase "in lieu tax" to describe a broad range of taxes. This sliver of
legislative history supports our interpretation of the phrase, see infra, at 131132.
Appellants submit an affidavit of John L. Zorack, an attorney who "represent[s]
clients in a variety of legislative matters before the United States Congress."
App. to Supplemental Brief for appellants in No. 14560 (Supp.Ct.S.D.) B-1, B2. Affiant Zorack states that he was "involved"in an unexplained capacity
in the passage of the legislation that ultimately became 1513(d). According to
affiant Zorack, the "in lieu" provision "was intended to ensure that the Act
would not invalidate state taxes which are a legitimate substitute for other taxes
on air carrier transportation property and which are not imposed in an effort to
tax such property at rates higher than those imposed on other comparable
commercial and industrial property." This would be an incongruous justification
for the "in lieu" provision, however, since airline property taxes that are not
imposed at rates higher than those imposed on other comparable commercial
and industrial property are not threatened by the antidiscrimination provisions
of 1513(d). Mr. Zorack adds that the in lieu provision "was inserted to take
care of Minnesota's objection to an earlier version." "To my knowledge no
other state made any representation at the time that it wished to be protected by
the in lieu provision," Mr. Zorack concludes. Id., at B-2, B-3. On the basis of
this affidavit, appellants argue that to be covered by the in lieu provision a state
tax must resemble the Minnesota airflight property tax, which was a substitute
for other property taxes previously imposed on airlines. As we note, infra, at
133, the interpretation of an "in lieu tax" as a tax that actually replaced a tax
previously imposed is admittedly a possible one. Appellants' attempt at the
creation of legislative history through the post hoc statements of interested
onlookers is entitled to no weight, however.